Carlyle to focus on institutional capital as peers build out wealth units

Fundraising, deals and exits as of the third quarter are at record levels, the alternatives giant reported on its latest earnings call.

The Carlyle Group is keeping its focus on raising capital from institutional investors amid its peers’ continued expansion into high-net-worth and retail distribution.

Speaking on the firm’s third-quarter earnings call on Thursday, chief financial officer Curtis Buser said: “Our plan is [to] really build on, remain focused on our institutional channel. It’s long-term capital. It’s extremely attractive, it’s driving our top-line growth.”

If the firm executes its plan, its fee-related earnings are expected to grow rapidly over the next few years, he added.

The private equity giant’s plan is to raise at least $130 billion in fresh capital by 2024, of which about half will come from its global private equity business, which also includes real estate and natural resources.

That the firm “remains focused” on institutional capital for its fundraising efforts differs slightly from its peers who have been increasingly targeting the wealth management segment. Ares Management this week unveiled a 90-strong wealth management solutions unit to develop and distribute its products globally. Apollo Global Management said last week it expects the private wealth channel to become a more significant investor in its funds. It expects AUM from the private wealth channel to grow from 5 percent today to 30 percent or more.

KKR, meanwhile, is building out its private wealth team in Europe and has been “investing aggressively” to tap private wealth and retail channels. Blackstone plans to double its 160 person-strong private wealth group, the unit’s global head Joan Solotar said at a media briefing in London on Tuesday.

Buser noted that Carlyle largely targets the high-net-worth channel via feeder funds, a segment that contributes between 10 and 15 percent of its fundraising.

Carlyle had said in its investor day in February that the firm is set to benefit from LPs consolidating their capital to fewer GPs – typically established managers with consistent track records.

That said, Nathan Urquhart, Carlyle’s head of investor relations, told Private Equity International in April that private wealth in Asia and Europe is a growth area for the firm and it plans to hire more staff dedicated to the wealth channel in these markets.

Carlyle saw accelerated activity during the third quarter of the year across fundraising, new investments and exits.

The firm gathered $21.7 billion in new capital in the third quarter, driven by the first close of its eighth US buyout fund and its first growth fund, as well as additional closes in its ninth US real estate fund and CLO origination activity in its credit unit. It raised $40 billion across strategies in the first nine months of the year, a 124 percent increase from the prior year.

Investment and realisations also clocked highs in Q3. Carlyle invested a total of $6.3 billion during the quarter across strategies, up from $3.7 billion in the equivalent period last year and $20.9 billion YTD, more than double last year.

Realised proceeds stood at a record $29 billion, up 106 percent from last year.

Fee-related earnings reached $151 million in the quarter and $424 million YTD, up 23 percent compared to 2020. The firm expects management fees and FRE to increase in the fourth quarter as it’s set to activate fees on its US buyout and growth funds as well as its next-gen real estate fund, Buser said on the call accompanying earnings results.

Global private equity had a 22 percent increase in assets over the last nine months, from $132 billion in Q4 2020 to $161 billion in Q3 2021.

The firm has $89 billion of dry powder, up from $77 billion last quarter, driven by new capital raises for its eighth US buyout fund. Carlyle’s AUM as of end-September was up to $293 billion, from $276 billion in the prior quarter.